Revenue and profit increased year-on-month in 1Q24, and the increase in expenses during the period affected the net profit margin. In 1Q24, we achieved revenue of 6.842 billion yuan (YoY +16.8%, QoQ -25.9%), net profit of 135 million yuan (YoY +23.01%, QoQ -72.8%), net profit excluding net income of 108 million yuan (YoY +91.3%, QoQ -81.3%). The year-on-year increase in performance was mainly due to the increase in business of some customers and a year-on-year increase in capacity utilization; the main reason for the month-on-month decline in revenue was 1Q24, the main reason for the month-on-month decline in profit: 1) The main reason for the month-on-month decline in off-season gross margin fell to 12.0 million yuan 2% (YoY +0.36pct, QoQ -0.97pct); 2) Management expenses (225 million yuan, YoY +31.6%, QoQ +4.7%) and R&D expenses (381 million yuan, YoY +23.3%, QoQ +6.4%) have increased, mainly due to the company's increased investment in advanced technology.
The automotive electronics business achieved a 68% year-on-year increase in 2023 results due to weak global demand. In 2023, the company achieved revenue of 29.661 billion yuan (YoY -12.2%), net profit of 1,471 billion yuan (YoY -54.5%), net profit after deducting non-return to mother of 1,323 billion yuan (YoY -53.3%), and gross profit margin of 13.7% (YoY - 3.3pct). The pressure on performance was mainly due to weak demand in the global terminal market and the semiconductor industry in a downward cycle, leading to a decline in customer demand and reduced capacity utilization. Among them, communications electronics, consumer electronics, computational electronics, industrial and medical electronics, and automotive electronics accounted for 43.9%, 25.2%, 14.2%, 8.8%, and 7.9% of revenue, respectively. Of these, the automotive electronics business revenue exceeded US$300 million, an increase of 68% over the previous year.
Set up an automotive electronics company and acquire Shengdi to accelerate the deployment of automotive electronics and memory chips. In March 2023, the company established a joint venture, Changdian Automotive Electronics, covering various application fields such as smart cockpits, intelligent connectivity, ADAS, sensors and power devices, and further increased its capital to 4.8 billion yuan with Dafeng Phase II, Shanghai State-owned Asset Management Company, and Shanghai Fund Phase II to accelerate the construction of a large-scale and highly automated advanced packaging base for the production of finished automotive chip products, which is expected to occupy a leading edge in the rapid development of the automotive semiconductor market. In March 2024, the company plans to acquire 80% of the shares of Shengdi Semiconductor (Shanghai) with US$624 million in cash to increase the packaging and testing capacity layout of advanced flash memory storage products while further strengthening the cooperative relationship with global storage giant Western Digital, which may benefit from an increase in the memory chip boom.
Facing the high-performance computing needs of the AI era, the layout is high-density multi-dimensional heterogeneous integration. As demand for computational power of generative AI grows dramatically, Yole expects the high-performance packaging market for this field to grow from US$2.22 billion in 2022 to US$16.05 billion in 2028. The XDFOI high-density multi-dimensional heterogeneous integration series of processes launched by the company has been stably mass-produced at many of the company's plants. This technology is an extremely high-density, multi-fan-out package high-density heterogeneous integration solution for Chiplet. It uses collaborative design concepts to integrate finished chip products and test, covering 2D, 2.5D, and 3D integration technologies. The company continues to promote the development and production of diverse solutions, including the three technology paths of rewiring layer adapter board, silicon adapter board, and silicon bridge as an intermediate layer, covering the mainstream 2.5D Chiplet solutions in the current market.
Investment advice: The world's leading manufacturer and technology provider of finished integrated circuits maintains a “buy” rating.
We expect the company's revenue for 2024-2026 to be 342.30/390.28/44.327 billion yuan (before 2024-2025:343.76/39.178 billion yuan). Considering that it is still in the early stages of global semiconductor recovery, the gross margin recovery in the packaging and testing industry is slightly slower than our previous expectations. In addition, the company will accelerate investment in R&D and capacity construction in advanced packaging fields such as high-performance computing and automotive electronics, or lead to further cost increases, reducing net profit to the mother in 2024-2025 to 2,138/2,764 billion yuan (previous value of 25.31/3.358 billion yuan). The net profit for 2026 is estimated at 3.487 billion yuan. The current stock price corresponds to 20.3 times PE and 1.59 times PB in 2024, maintaining a “buy” rating.
Risk warning: downstream demand falls short of expectations; new product development falls short of expectations; worsening international relations, etc.